Look I'm going to admit right upfront that I didn't listen to Powell's entire commentary. But a quote this week from the same Federal Reserve chair who has been saying for months that inflation will be transitory seems to contradict the idea that inflation will be transitory.
"The current inflation spike is really a consequence of supply constraints meeting very strong demand. And that is all associated with the reopening of the economy, which is a process that will have a beginning, middle and an end. It’s very difficult to say how big the effects will be in the meantime or how long they last."
Jerome Powell, Federal Reserve Chairman via Wall Street Journal
So if I have this correct, supply chain constraints are what is really causing inflation, and we have no idea how long those effects will last. That kind of sounds like inflation isn't transitory, no? At what point will the market stop believing the Fed? Bernanke said the Fed could normalize the balance sheet. Janet Yellen said reducing the balance sheet would be like watching paint dry. Turns out they were both very wrong. Now Powell's transitory inflation seems to not be transitory after all. On stable prices vs labor market mandates, here's more Powell hilariousness courtesy of the same WSJ article:
“Managing through that process over the next couple of years is…going to be very challenging because we have this hypothesis that inflation is going to be transitory. We think that’s right. But we are concerned about underlying inflation expectations remaining stable, as they have so far.”
Stable so far? Really? Maybe if you exclude food and energy then, sure, we have stable high inflation with some things. But not everything. I pointed out in May cigar price inflation was just under 8%. Hell less than two weeks ago I caught Costco trying to hide a 15% price hike for toilet paper by selling less sheets per package. Sorry, Jerome. Not buying the stable inflation line. But I also never bought the transitory line or the tapering line. Furthermore, taking the above quotes together, this is the message we get: inflation is transitory but inflation is also being caused by supply chain bottlenecks that are difficult to predict an end to. Also inflation is stable but it might not be.
Uhm... What?
When do we get to the point where even the Steve Liesmans of the world can no longer try to defend the central bank's believability? Maybe we're there already. As I said over the weekend, gold has been sold off on the same taper carrot several times. Is it a coincidence that gold had a 2% rally the day following these comments from Powell?
But back the bottlenecks for a moment
These supply chain disruptions in the auto industry are no joke and my wife and I are currently learning this the hard way. Today was a particularly interesting one because our secondary vehicle is in desperate need of a fix. We're lucky that we can drive together to the city for work at the moment, but there may come a time in the months ahead where we need our backup vehicle on a daily basis. The problem is the backup vehicle needs an ABS module replaced so the brakes stop locking up on right turns.
It's drivable, but it is not pleasant. We've taken it to our guy multiple times and he can't find the part anywhere. I contacted three different aftermarket distributors and nobody has it. Not only that but the part literally cannot be sourced from any dealer in America and the manufacturer has a backorder ETA of "no estimated date of release." So what are the choices in this environment? Get a new car? Not taking on the debt and new vehicles are now hard to come by anyway. I did something today I've never done before. I bought the part I need used on eBay from a donor car with over a hundy thousand miles. Fingers crossed.
I'm surprised Jerome's money printer hasn't fixed this yet.
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